Cook Paid $4.2 Million

Apple CEO's Base Salary Rises, But He Collects No New Shares

By

Ben Fox Rubin

Updated Dec. 27, 2012 7:26 p.m. ET

Apple Inc.AAPL-0.87% Chief Executive Timothy Cook received an estimated $4.2 million in compensation for this year, a relatively modest figure after being awarded a large, multi-year pay package last year.

Apple CEO Tim Cook, who topped the list of highest-paid CEOs last year, received significantly less for 2012, taking home just $4.2 million in total compensation. George Stahl has details.

Mr. Cook's pay package for 2011 was valued at about $378 million, thanks largely to an award of one million restricted Apple shares. The grant, made when the stock traded around $376 a share, was intended to retain Mr. Cook as CEO because half of the award vests in 2016 and the remainder in 2021. Since the award, the company's shares have risen by more than a third.

Mr. Cook's salary rose to $1.4 million this year from $900,000, according to a regulatory filing Thursday, but he received no stock awards this year, resulting in the much-smaller pay package. Mr. Cook didn't receive stock this year because of the large award he received when he was promoted to CEO, the company said.

The rest of Mr. Cook's 2012 compensation came primarily from $2.8 million in performance-based bonuses. Apple said the company exceeded the maximum performance goals for net sales and operating income set by its compensation committee for this year. As a result, each executive officer received the maximum payout of twice the person's base salary under the bonus plan.

In addition, four top executives at the technology company received large stock awards this year. The company recently began granting large restricted stock awards to certain executives every two fiscal years, creating sharp swings in pay packages, Apple said in its Securities and Exchange Commission proxy statement.

Scott Forstall—the company's former mobile-software head, who was asked to leave Apple in October—wasn't mentioned in the proxy statement, leaving investors to wonder what, if any, severance package he may have received.

Following the company's stated practice, Mr. Forstall would have been scheduled to receive a large stock award this year, as his total compensation was valued at $1.4 million last year and $29.6 million in 2010. Mr. Forstall left Apple following criticism over the company's new mobile-mapping service, which contained numerous errors and was a rare product snafu for the company.

An Apple representative wasn't available for comment.

Chief Financial Officer Peter Oppenheimer's compensation grew to $68.6 million this year from $1.4 million last year as his pay package included $66.2 million in stock awards.

Bob Mansfield, the company's hardware chief, received compensation valued at $85.5 million this year, nearly all of it from stock awards. Mr. Mansfield told the company in May that he intended to retire, which resulted in changes made to the vesting dates of his previously granted stock awards, but he later convinced to stay.

Other executives benefiting from large stock awards included Bruce Sewell, general counsel and secretary, who received total compensation of $69 million, up from $1.4 million, and Jeffrey Williams, senior vice president of operations, who received $68.7 million in all.

As part of the proxy statement, Apple nominated all eight of its current directors to continue on the board. Also, a shareholder proposed the creation of a board committee on human rights, responding to concerns about working conditions at Apple's suppliers. The board recommended voting against the proposal, noting what Apple already does in this area.

The CEO can be worth every dollar he earns if he actually makes good decisions that cause large amounts of value to be created. He has to see when the business plan needs changing. I don't see it happening. Apple is not only falling off in real innovation, I think they are also in danger of losing their reputation for premium quality. Of the two phones I got about a year and a half ago. One failed the second day (bad battery) and the second was damaged by the recent ios7 "upgrade" push. The blogs indicate that its a well known problem. The Apple reps say in essence I should have bought insurance against them damaging my phone. I take different lessons. One of them is if they aren't trying to keep the reputation for premium quality which they need for the high profit margins, their stock is probably overpriced and the CEO is probably overpaid.

Any of us would do just fine with Tim Cook's 'crumbs.' And, as was reported in the video for this article, if the top four or five Apple executives were taxed at 50%, that would close the deficit and then some. As much as I respect Apple's leadership, it is problematical that American corporations' employee to executive pay ratio is so wide. When people who actually need money make more of it, the economy is helped because the money is spent instead of invested or salted away overseas to avoid taxes.

Although every industry faces some form of regulation, utilities / natural monopolies for example, are regulated to the point where their Return on Capital is mandated. In fact, each state has a Public Utilities Commission (PUC) that effectively legislate what RoI these enterprises should achieve. Under the new healthcare laws, medical insurers etc will face similar controls. Part of the argument by folk who complain/complained about compensation in energy utilities etc, whether one accepts it or not, stemmed from the premise that as regulated natural monopolies (by and large) that these institutions should not extract too much surplus from economic rents derived from largely natural resources (or some other regulated supply) ...

On the other hand, producers of discretionary consumer owned goods and services only face different (and much less ROI/ROC impacting) forms of regulations. So although the FCC grants spectrum licenses to wireless providers, it does not tell them what ROI to achieve (or conversely, what price to charge customers). The premise there being that the inputs into production for such goods are not subject to supplier power (anyone can make a smartphone right?)...in other words, the market is more competitive here...so regulation at the price level is not required to even the playing field....

Gee, maybe he could share a little with the overpriced Chinese slaves who make his iCrap, and they'd stop committing suicide.

I put a lot of work into learning Flash and crApple is trying to destroy it. I like Google because they stood up for Internet freedom while Apple hid out, and Apple is trying to destroy them, too. Screw crApple.

Innovation evaporated with the death of Jobs unfortunately, Apple seems to get back to the situation that had faced in the mid '90s. Well, Tim is not a visionary, I was really flabbergasted when I saw that someone with such a business acumen as Jobs used to have put in the driving seat someone like Cook, who may be a good operations guy after all but not a front line leader Apple desperately needs..

Although the ratio between between execs and the average employee are high (embarrassingly, in some cases)...you should consider two views here:

1. In a global market place (for goods, and yes, labor) how much higher should US wages be compared to our competitors? In other words, should the wages of a US steelworker be higher than those of a Chinese one (assuming they use the same steel technology)? In other words, a more accurate comparison would be between wages of workers (from different, but competing, countries) doing the same work, using the same technologies.

2. Compensation becomes increasingly performance based the higher one moves in the corporate ladder. The prevalence of employee stock options in Silicon Valley for example, is one of the main draws for talent there. In your average Fortune 500 firm, the practice of awarding stock options is seen as a way to align incentives (between employee and employer) is well practiced (though not always well structured). In my experience stock options are a huge motivator for performance. Everyone in my team (as well as their peers throughout the firm) gets 10 ~50% and of their compensation in stock. Obviously that scale goes all the way up to >100% for levels above mine.

So what is my point in all this: There appear to be two layers in our economy/society:

Category 1: your average worker. Globalization is grinding out pay disparities across substitutable labor pools (i.e. if I can outsource your job to India, why pay you significantly more)

Category 2: the creative, innovative or management layer (you could put all of AAPL's US based employees in this group). This group is reaping all the rewards arising from productivity gains achieved through globalizing Category 1.

And where do finance and banking get their "natural monopoly"? Yep, they are very heavily regulated, but they don't have a monopoly. There are still around 7,000 banks in the US. Banking and finance is a discretionary service; a consumer does not need a bank or finance company to live in the US.

There is no outrage because this guy, unlike the money changing crooks and manipulators of the nation, produces SOMETHING, instead of merely moving figures in virtual wealth spreadsheets and awarding himself a small percent of each total so generated in some fantasy world. Jobs and Cook gave us something and contributed to bettering our lives. In contrast, banking charlatans are but parasites on the backs of the working people, get money from the Fed for free after blackmailing the nation with economic collapse unless saved. They should in suoermax prisons or led to the gallows, not dressed up in suits in some corporate board room.

The pay of any executive of a public company is no ones business except the shareholders. That said, U.S. shareholders have been getting robbed by executives and boards that have been scratching each others financial backs at the expense of the shareholders. If you look at U.S. executives and compare them to comparable Asian and European executive compensation, you can't justify how much more the U.S. executives get paid.

But as with most things in America (and in human nature) no one cares about the "bad" stuff while things are good. You might say that the executives can get fired if the company does poorly, but by then, they've already banked 10's or 100's of millions of shareholder money.

I think that most of the outrage is focused on the management of regulated industries (finance, banking, health care, utilities, etc) and less so towards the management of companies that produce discretionary/consumer owned goods.

A couple of factors account for some of this distinction:

1. Is the industry a natural monopoly2. Can supplier power be concentrated in such a way as to limit buyer power (i.e. price gouging) 3. Is the good that the industry produces a staple/necessity

The natural monopoly attribute would not be the only one that compels regulation. In the case of finance and banking there is an argument related to protecting society from a range of issues including:

So although am not suggesting a 'natural monopoly argument' here, one could make a tenuous claim that access to the money supply (through the Fed) is akin to access to an input that has the characteristics of a natural monopoly.

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